15 ESR Group Limited Interim Report 2024 Under the Corporate Performance pillar, the Group continues to be recognised for its robust ESG disclosure practices. In 1H2024, its ISS Governance QualityScore improved from 8th decile rank to 1st, in addition to its ‘Low Risk’ score of 15.5 in Sustainalytics ESG Risk Ratings. The Group also submitted its inaugural United Nations-supported Principles of Responsible Investment (UN PRI) assessment in July 2024, demonstrating its commitment to integrating responsible investment practices across its business. LOOKING AHEAD According to the World Economic Outlook15, the outlook for global economic growth is overall balanced although risks and uncertainties that have a bearing on monetary policy decisions still exist. Management will continue to progress its key business priorities, to achieve a sustainable growth and maximise long term shareholder value. The streamlining and simplification of ESR’s business enable the Group to focus on strengthening the development and fund management platform in New Economy, as it positions ESR for the next stage of growth. Management is optimistic that the next 12 to 18 months will be supportive of a recovery with the expected lower short-term rates providing the biggest market catalyst followed by the APAC growth in AI. A reduction in interest rates would likely support a rebound in asset values and consequently fund exits and promotes. It would also support a similar rebound in development starts and be a stronger catalyst for the execution of the balance sheet asset sales as well as the remaining non-core divestments. Increased capital raising in core/core-plus and development funds is expected as capital partner transaction activity picks up, along with increased deployment of uncalled capital to boost Fee-related AUM and Fee Income. The Group is also expected to benefit from an optimised debt portfolio and reduced interest expense over the next 12 months. Notes: 15. IMF World Economic Outlook Update, July 2024 FINANCIAL REVIEW The Group recorded net loss of US$209.0 million for 1H2024, as compared to net profit of US$313.9 million for 1H2023. The decrease in profit was primarily attributable to non-cash asset revaluations and a lack of promote fees in 1H2024, which are reflective of current market conditions. The Group’s underlying business remains solid and the Board is confident in the Group’s ongoing strategic direction and core operating earnings. REVENUE The Group’s revenue decreased by 31.4% from US$455.4 million in 1H2023 to US$312.5 million in 1H2024, mainly due to lower management fee that decreased by 37.0% from US$402.9 million in 1H2023 to US$253.7 million in 1H2024. Lower management fee was mainly due to US$136.0 million of promote fees recorded in 1H2023. Promote fees are recognised upon the recapitalisation or realisation of the Group’s managed funds. Accordingly, the Group’s promote fee varies with the life cycles of the managed funds and the real estate cycle. As highlighted in prior results announcements, there may be select periods where no promote fee is recognised and the Group did not record any promote fee in the six months ended 30 June 2024. This is reflective of the current phases of the Group’s fund life cycles and the overall real estate cycle, and increased promote fees would be expected as these two drivers move in the Group’s favour. Excluding the promote fees recognised in 1H2023, there was a 5% reduction in the management fee, primarily due to slower development progress and project delays in Japan and South Korea. However, the Group’s recurring fees from asset management, investment management and property management grew y-o-y underscoring the resilience of the fund management platform. Excluding the impact of foreign exchange fluctuations particularly in Japan and South Korea, the decline in Fee Income would be a more moderate 2% y-o-y.
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